Introduction

1. Law is set of rules 2. Legislator creates rules 3. Judge takes the decisions basing on the guiding principles 4. Law includes all the rules and principles which regulate relations with other individuals and with the state. 5. Law is a rule of human conduct and acts in society through the medium of social change.

Need
Ignorantia juris non-excusat Ignorance of law is not excusable Knowledge relating to law avoids conflicts No businessmen can solve his legal problems without the expert legal advice

Characteristics
Social engineering Habit and thought of mankind Distant formal regulation Uniform rules Authority and power Not static

Stranger to the contract can not be sued

Exceptions are 1. In case of trusts 2. In case of family settlements 3. In case of acknowledgement 4. Assignment of a contract

Exceptions to the general rule of consideration

No consideration in case of Agreements made on account of natural love and affection Promise to compensate Promise to pay time barred debt Completed gift Agency ship

Capacity of the parties

Sec 11 of Indian Contract Act, 1872 says, every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind and is not disqualified from contracting by any law.

Position of agreements by a minor

Minor agreements are invalid abiinitio He always pleads minority In case of fraudulent representation compensation will be arranged It can not be ratified on attaining majority Agreement of minor jointly with major: Major has to fulfill the contract, Minor can not be a partner Minor can act as an agent

 Minor can become a shareholder Minor can not be adjudged as insolvent Contract for the benefit of minor: He can become a promisee. Minors guardian on behalf of the minor can enter in to contract, but not for purchase of property for self Contract for supply of necessaries: Minor is liable for supply of necessaries Minor is liable for Tort (Civil wrong)

Persons with unsound mind

Insane Lunatics Drunkards Idiots stupid

Burden of proof must be there

People disqualified by law

Alien enemies Foreign sovereigns Convicts insolvents

Free consent
Two or more persons are said to be consent when they agree upon the same thing in the same sense.(Sec.13) According to Sec.14 of Indian Contract Act, consent is said to be free when it is not caused by Coercion (as defined in Sec 15) Undue influence (Sec.16) Fraud (Sec.17) Misrepresentation (Sec 18) Mistake (Sec 20-22)

1. 2. 3. 4. 5.

Coercion
It consists of committing or threatening to commit an act, forbidden by Indian penal code or the unlawful detaining or threatening to detain any property to the prejudice of any person whatever with the intention of causing any person to enter in to agreement.

Coercion
Actual act of violence or unlawful imprisonment Threatening to commit unlawful imprisonment To a mans person and not merely to his goods Coercion is to the party or to his wife, child, parent or any relative

Undue influence
There must be some sort of relationship between the parties. Such relationship must be such where one of the parties is in a position to dominate the will of others and uses the position to obtain unfair advantage. 1. Ex: Money lender & Borrower 2. Spiritual Guru & Illiterate villager 3. Doctor & Patient

The person dominates other when

Where he holds a real or apparent authority over the other or where he stands relation with other Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress.

Difference between coercion & undue influence

1. There is physical pressure 2. It affects not only person but also property 3. There may not be any relationship 4. The act is an offence within the meaning of I.P.C 1. There is mental pressure 2. It affects only person

3. There should be relationship 4. This is not offence

fraud
1. 2. 3. 4. Deceit or Trickery Two types of fraud. (1) Actual fraud and (2) Constructive fraud Actual fraud means: Suggestion as a fact which is not true The actual concealment of fact Promise made without any intention to fulfill Any other deceiving

 Constructive fraud means a person keeping silence when one party asked something or inquires about the subject matter of contract even though the person knows the fact. The person playing fraud not only to pay damage for breach of contract but also is liable to punishment under the I.P.C

Misrepresentation
It is a positive assertion, in a manner not warranted by the information of the person making it, though he beliefs it to be true. There is no intention to deceive Mere expression of opinion doesnt amount to misrepresentation Misstatement made negligently or recklessly Misrepresentation may not direct. It is made to third person also.

Fraud Intention to deceive Misstatement is made knowing untrue He can claim damage Liable under criminal law

Misrepresentation No intention to deceive Misstatement is made knowing it is true No damage Not liable under criminal law

Mistake
1. 2. 3. 4. 5. Erroneous belief Mistake by law or mistake by fact Mistake by fact: Mistake as to the existence of subject matter Identity of the subject matter Quality of the subject matter Quantity of the subject matter Possibility of performance

Following are declared as void

Agreements by incompetent parties Agreements made under mutual mistake of fact Consideration or object is unlawful Agreements made without consideration Agreements in restraint of marriage Agreements in restraint of trade In restraint of legal proceedings Uncertain agreements Contingent agreements Agreements to do impossible acts

Void contract It is invalid from the very beginning It need not be avoided by a decree of court Benefits received by the party need not be refunded It does not require any option of the party to declare it void

Voidable contract It is valid unless avoided It can be avoided by the party for which a decree of court necessary Benefits received by the party need be refunded It is optional by declaration of a party to avoid it.

Illegal agreements
It is against the law in force in India There is a question of punishment under the relevant law Collateral agreement is also void

Quasi contract
It is a contract only in law and not in fact. There is no offer and acceptance between the parties Such obligation stands on equitable considerations in law. It is based on the principle of equity. Objective behind that is no one should become rich at the cost of others Law does not favor unjust enrichment

Performance of the contract

The essence of the contract is that it creates obligation on the parties to fulfill the obligation. The act of fulfilling such obligation is known as performance of the contract It means doing that which a person has promised to do.

Performance of contract consists of

Mode of performance Tender of performance Time Reciprocal promises

Mode of performance
The promiser himself perform the contract The death or insanity may terminate the contract The promises may pass on to the legal representative in case of death Personal cause of action dies with the death of person. Promisee may however accept performance by a third party by assignment

 Assignment of contract means transfer of rights and liabilities under the contract from the assignor to assignee. If there are joint promises all must perform and after the death of any of them the survivor and the representative of the deceased must perform. When two or more persons made a joint promise a release of one such joint promisers by promisee does not discharge the other promiser

Tender of performance
Promiser must perform the promise or offer to perform the promise. Such offer is known as tender of performance. It must be unconditional Made at proper time and place Person to whom it is offered must have reasonable opportunity of ascertaining identity of goods that are to be delivered. In case of joint promises tender made to one is tender for all.

Time is the essence of the contract

The contract to be performed within the specified time. Other wise the contract become void. The promiser is entitled to pay compensation from the promiser for any loss caused to him by such failure

Reciprocal promises
A promises to make furniture to B, B promises to pay the price on delivery, both parties made reciprocal promises

Discharge of the contract

By performance By agreement By impossibility of performance By lapse of time By operation of law By breach of contract

By performance
Actual Attempted or Tender

By agreement
By express consent 1. 2. 3. 4. 5. 6. By implied consent Novation Rescission Alteration Remission Wavier merger

By impossibility of performance
1. Known to the parties 2. Unknown to the parties 3. Supervening impossibility

Not excuse 1. Difficulty of performance 2. Commercial impossibility 3. Failure of third party 4. Strikes, lockouts & civil disturbances 5. Failure of one of the objects

An excuse 1. Destruction of subject matter 2. Non-existence of things 3. Death or incapacity for personal services 4. Change of law 5. Out break of war

By operation of law
Death Merger Insolvency Unauthorized alteration of terms of contract Rights and liabilities are resting in the same person

Breach of contract
Actual At the time of performance During the performance Anticipatory By the act of promiser making performance impossible i.e. implied repudiation By renunciation of obligation i.e. express repudiation

Remedies for the breach of the contract

1. 2. 3. 4. Rescission Injunction Specific performance Quantum merit Restitution of benefit Damages Nominal Liquidated Compensatory or actual Exemplary or vindictive

Contingent contract

It is a contract to do or not to do something, if some event, collateral to such contract does or does not happen. Essentials: 1. The performance of this contract is made dependent upon the happening or nonhappening of some event. 2. The event on which the performance is made to depend, is an event collateral to the contract i.e it does not form part of the reciprocal promises which constitute the contract 3. It is valid and legal

Indemnity
Indemnity means to make good the loss or to compensate the party who has suffered some loss. The person who promises to make good the loss is called the indemnifier. The person whose loss is to be made good is called indemnity-holder. In addition to the implied or express promise to indemnify, all the essentials of a valid contract must also be present.

Guarantee
Parties to a contract of Guarantee are principal debtor, creditor, surety. Principal debtor: The person in respect of whose default the guarantee is given is called the principal debtor. Creditor: The person whom the guarantee is given, is called the creditor. Surety: The person who gives the guarantee is called surety.

Essential features
Tripartite agreement: There are three parties. Consent of three parties: There must have consent Existence of a liability Essentials of a valid contract Guarantee not be obtained by concealment

Types of Guarantee
1. 2. 3. Specific Guarantee Continuing Guarantee Revocation of Continuing Guarantee By notice of revocation By death of surety By modes of discharging liability

By modes of discharging liability

Novation By variance in terms of contract By release or discharge of principle debtor By creditor act By loss of surety

Contract of agency
Person employed to do any act for another in dealings with third person. The function of an agent is to bring about contractual relations between the principal and the third parties. Any person who is of the age of majority according to the law to which he is subject and who is of sound mind. A minor or lunatic cannot contract through an agent .

Who may be agent

He can be minor or lunatic. However, the principal cannot hold the agent liable, in case of misconducts or has been negligent in performance of his duties.

Creation of Agency
1. Express agency: appointed as agent, either by word of mouth or by writing 2. Implied agency: It arises from the conduct, situation or relationship of parties. 3. Agency by ratification: where an agent does an act for his principal but without knowledge or authority or where he exceeds the given authority, the principal is not held bound by the transaction. Section 196 permits the principal , if he so desires, to ratify the act of the agent.

Classification of agents
1. 2. 3. 4. 5. 6. 7. Mercantile or commercial agents Broker Factor (possession of goods) Commission agent (lien) Del credere agent (Guarantee) Auctioneer Banker Indentor (foreign country) Non-mercantile or non-commercial agents

Duties of an agent
To conduct the business of agency according to the principals directions and not to deviate even for the benefit of the principal To conduct the business with the skill and carefulness To render proper accounts Not to make any secret profits Not to deal on his own account Not entitled to remuneration for business mis-conducted

Rights of an agent
Right to receive agreed or reasonable remuneration Right to retain money of the principal towards advances made or express properly incurred by him. Right of lien i.e. to retain properties of the principal for the amount due to himself for commission, disbursements and services rendered Right of stoppage-in-transit in case of delcredere agent

Personal liability of an agent

Where acting for a foreign principal Acting for a principal whose name he does not disclose Where the principal cannot be sued He acts without authority or exceeds the authority Where he agrees to be personally bound He is guilty of fraud or misrepresentation Trade or custom makes him personally liable Where he signs a negotiable instrument on his own name

Termination of Agency
By revocation by principal On the expiry of fixed period of time On the performance of specific purpose In the event of insanity or death of the principal or agent On the destruction of the subject-matter of agency In the event of insolvency of the principal By renunciation of agency by the agent

Bailment
Bailment is a contractual relationship which is established when an owner vests the possession of his goods in another person. Bailee is required to take care of goods just like his own goods in similar circumstances Bailee is not liable for loss etc of thing bailed Care to be taken by bailee

 To disclose known faults in the goods bailed. Bailer, in case of bailment for hire or reward, shall be liable for damages for faults whether they were known or unknown. Bailer to be liable for damages due to lack of authority to make bailment To bear expenses in case of gratuitous bailment. (no remuneration) To bear only extra-ordinary expenses in case of non-gratuitous bailment

Duties of Bailer

Duties of Bailee
To take as much care of the goods as a man of ordinary prudence would take of his own goods Not to make unauthorized use of goods Not to mix bailors goods with his own To return the goods bailed without demand To return any goods bailed

Pledge
Pledge is a bailment where the goods are bailed for security of loan The bailor is in this case called the pawnor The bailee is called the Pawnee. Suit by bailor or bailee against wrongdoer.

Law of Sale of Goods Act 1930

Goods Every kind of movable property other than actionable claims and money and includes stock and shares, growing crops, grass and things attached to or forming part of the land which agreed to be served before sale or under the contract of sale

Immovable property
It includes land, benefits to arise out of land and things attached to the earth or permanently , but shall not include standing timber, growing crops or grass. Movable Property: It is the property of every description except immovable property. It includes standing timber and growing crops.

Formation of the contract

Where seller transfer property in goods to buyer for a price such contract is called sale Where seller agrees to transfer property in goods to a buyer for a price such contract is agreement to sell.

Distinction between sale and Agreement to sell

Sale Transfer of property is immediate Resting of the property: Buyer Risk of loss: Buyers risk Right over the property: Buyer Breach of contract: Sale affected party is entitled for the goods Agreement to sell Transfer of property takes place at future time Seller Sellers risk Seller

Only claim for damages

Sale contract may provide

Immediate delivery of goods Immediate payment of price Both immediate payment and immediate delivery Delivery of goods by installment Payment of price by installments Both delivery and payment of price are made in installments

General principles
Intention of the parties goods must be ascertained. Seller has the right to sell the goods in the case of sale. Where goods are sold by description, goods correspond with the description Where goods are sold by sample, goods correspond with the sample.

 Where goods are sold by sample as well as description, bulk of goods should not only correspond to the sample but also to description. The goods shall be reasonable fit for such purpose Goods shall be of merchandisable quality (fit for merchant purpose) Goods shall be of wholesomeness. (human consumption)

 Specific goods in deliverable state Where goods are not in deliverable state put them in deliverable state Unascertained or future goods Delivery to carrier Goods sent on approval or sales or return basis Risk prima facie passes with property Passing property in sea carriage: F.O.B contracts, F.O.R contract, C.I.F contract, C&F contract.

Condition

Warranty

It is a stipulation A stipulation upon the fulfillment collateral to the of which depends main purpose of on the contract circumstances essential to the things in existence.

Differences between condition and warranty

Condition A stipulation essential to the main purpose of contract Breach of condition give rise to right to reject the goods The test for determining a breach of condition is to examine whether the main purpose of the contract is fulfilled or not Warranty A stipulation collateral to main purpose of the contract Breach of warranty gives rise to a right to claim the damages The test for determining a breach of warranty is to examine whether any of the subsidiary purposes have been violated

Performance of the contract

Voluntary possession from one person to another. Types of delivery: 1. Physical delivery: Goods are physically handed over. 2. Symbolic delivery: where some symbol of the real possession or control over the goods is handed over. Ex: Handover of keys 3. Constructive delivery: Acknowledges to hold the goods on behalf of the buyer.

Legal rules relating to performance

Both parties must willing to deliver Mode of delivery: mode prescribed Effect of part delivery: Part delivery only when parties agreed & it is the intention Buyer to apply for delivery. Place of delivery: at agreed place or where goods are placed for sale or where goods are manufactured. Time of delivery: at reasonable time or as time specified

 Delivery when the goods are in possession of a third person: No delivery by seller until such third person acknowledges to the buyer that he holds the goods Demand of delivery to be treated as ineffectual unless it is made in reasonable hour Expenses of delivery: The expenses of putting the goods in to deliverable state shall be borne by seller

 Short delivery: May reject or accept Excess delivery: May reject or accept up to requirement Mixed delivery: mixing the goods of different description Delivery by installments: buyer not bound to accept delivery by installments unless otherwise agreed. Delivery through carrier: Seller shall make a reasonable contract with the carrier. The seller should give notice to buyer to enable him to insure the goods

Acceptance of the delivery

Delivery does not amount to acceptance of the goods Goods are accepted if buyer intimates to seller If he did not act which shows that he has accepted them If he does not inform that the he rejected the goods before the reasonable time

Doctrine of Caveat Emptor

1. 2. Let the buyer beware Exceptions: Misrepresentation Concealment of latent defect which could not be discovered Sale by description Sale by sample Sale by sample as well as description Fitness for a particular purpose Merchandisable quality

3. 4. 5. 6. 7.

Unpaid seller or vendor

An unpaid seller is a seller who has not been paid the whole of the price or who has received any negotiable instruments which is subsequently dishonored.

Rights of Unpaid seller

1. Right of lien: He is entitled to retain such possession, until the full payment or tender of the price of the goods where The goods are not sold on credit Goods have been sold, but the period of credit has expired The buyer become insolvent

2. Right of stoppage in transit: Right preventing the goods from being delivered to buyer. The right of stoppage in-transit may be effected either by making actual possession of the goods or by giving notice of claim to the carrier or other person having control of the goods

3.

Right of resale: An unpaid seller exercising the right of lien or stoppage in transit can re-sell the goods and sue the buyer for damages provided he has given notice of his intention to re-sell to the buyer and asked him to pay the price within reasonable time: Where the goods are of a perishable nature When the buyer does not pay or tender for the price.

4. Right to with hold delivery: where the property in goods has not passed to the buyer, the unpaid seller has a right of with holding delivery.

Rights of an Unpaid Seller against the Buyer Personally

Suit for price Suit for damages for non-acceptance Suit for damages for Breach of contract Suit for interest

Negotiable Instruments Act,1881

Negotiable instrument means a promissory note, bill of exchange or cheque payable by either to order or bearer. Negotiation: When a Promissory note, Bill of Exchange or Cheque is transferred to any person, so as to constitute the person the holder thereof, the instrument is said to be negotiated Instrument includes every document by which any right or liability be created, transferred, modified, limited, extended, suspended, extinguished or recorded.

Assignment
An instrument is said to be assigned when a Promissory Note, Bill of Exchange or Cheque is transferred document under the provisions of the Transfer of the Property Act, 1882. The person who assign the rights is called Assignor. The person to whom such rights are transferred is called assignee.

Characteristics of Negotiable Instruments

They are freely transferable Payable to the order or bearer It is presumed that Negotiable Instrument is accepted, negotiated or transferred for consideration A holder in due course enjoys several privileges and can use in his own name on a negotiable instrument

Promissory Note
A promissory Note is an instrument in writing. Not being a bank note or currency note. Containing an Unconditional undertaking Signed by the maker To pay certain sum of money only to or to the order of, a certain person or bearer of the instrument. Two parties: Promiser or Maker, Promisee

Bill of Exchange
A Bill of Exchange is an instrument in writing Containing an Unconditional Order Signed by the Maker Directing a certain person to pay certain sum of money Only to, or to the order of, a certain person or to a bearer of the instrument. Parties to Bill of Exchange: Maker (Drawer), Drawee (Person directed to pay), Payee (Person named in the instrument)

Cheque
Cheque is a Bill of Exchange drawn on a specified banker and payable on demand. Always signed by the maker Unconditional order Always drawn on a specified banker Always payable on demand

Holder and Holder in due course

Holder: person who is entitled to hold negotiable instrument. He need not be in possession of the instrument but is considered to be the lawful owner in the event of loss or destruction of the instrument Holder in due course: A holder in due course is the person who actually possess the instrument. He should obtain the possession of instrument in good faith, that too in payment of value before the maturity of the instrument

Discharge of Negotiable Instrument

Party get discharged from liability By Payment By Cancellation By Release By party primarily liable becoming holder

Discharge of Party and Instrument continues

By payment By Cancellation By Release By allowing drawee more than 48 hours to accept By Non-presentment of Cheque within reasonable time By payment of Cheque By qualified acceptance By material alteration By operation of law Acceptor become holder

Dishonor of cheques
When the drawee does not accept within 48 hours of presentment. When the drawee is fictitious person When the drawee can not found after reasonable search When the drawee is incompetent Maker signature differs Cheques out of date Cheques post dated